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Would GMO labeling requirement cost $500 more in groceries per family a year?

(Erich Schlegel/AP Images for GMO Answers)

“Having a series of different and conflicting state and local GMO labeling mandates will increase grocery prices for consumers by hundreds of dollars per year. Grocery costs for a family could increase by an average of $500 per year under GMO labeling mandates, according to a Cornell University study.”

— Coalition for Safe Affordable Food, news release on Web site, March 25, 2015 

There’s a lot of buzz over “GMO labeling,” though polls consistently have shown that consumers don’t know much about it. Genetically modified organisms, also called GMO, genetically modified food, genetically engineered food, are crops whose genes are altered using biotechnical techniques. Plants are bred to have certain characteristics, such as being more resistant to herbicides or pests, or to better withstand drought. Food and food ingredients made from such crops have been in the food supply since the 1990s.

A huge portion of commonly grown crops in the United States are modified this way, especially corn, soybeans and cotton. For the most part, genetically modified crops are considered safe. But the debate is over whether food products should be required to be labeled as genetically modified.

Last year, Vermont became the first state to require food makers to label products that include GMOs. The requirement goes into effect in July 2016. There are efforts in more than 20 states to require GMO labels. The debate is picking up steam on a national level as Congress debates a bill that would trump states’ decisions to mandate GMO labeling.

The Coalition for Safe Affordable Food is one of the bill’s proponents, which include many food industry groups, who want to see a voluntary labeling system.

Would mandating GMO labels really cost an additional $500 per year for a family of four?

The Facts

A bipartisan bill, proposed by Reps. Mike Pompeo (R-Kan.) and G.K. Butterfield (D-N.C.), would block states from requiring GMO labeling. Instead, it would set up a voluntary labeling program that would certify foods that do not contain GMOs.

Those who want labeling say they want a nonjudgmental, back-of-package wording. The point, advocates say, is to allow consumers to make informed decisions, if they care about whether foods contain GMOs. Just as people look for the amount of trans fats, sodium, sugar or any other ingredient they care about, consumers would be able to see that the product may contain GMO ingredients.

Both sides largely agree that simply adding the wording would not drive up consumer costs. Companies regularly update their food packaging as they come up with new designs or marketing strategies. But those who oppose mandatory labeling say the requirement would drive up costs because it would change manufacturers’ and consumers’ behaviors.

A study by Cornell University Professor William Lesser found that if GMO labeling is required in New York, a family of four would pay $500 more each year. Lesser uses consumer surveys to project the demand for products that contain, and are labeled as containing, GMO ingredients. Demand for non-GMO products will grow in part because the labeling is perceived as a warning. To remain competitive, companies then would need to create new products without GMO ingredients. Non-GMO ingredients, especially corn and soybean, tend to be more expensive.

Companies would, therefore, spend more money on ingredients and on producing, warehousing and stocking these new non-GMO products in supermarkets. The study assumes that all cost increases will be passed along to food consumers, as opposed to being absorbed by the companies or supermarkets.

Lesser said he used these assumptions because polls show that consumers would be less likely to buy consumer products labeled as containing GMO. Competition would drive companies to switch to non-GMO ingredients, he wrote to The Fact Checker.

December 2014 Associated Press-GfK poll found 66 percent of Americans favor “requiring food manufacturers to put labels on products indicating if they contain genetically modified ingredients.” Among those polled, 42 percent said knowing whether food was genetically modified was extremely or very important in judging whether it’s a healthy choice, while 28 percent said it was moderately important.

An August 2014 Pew Research survey found 57 percent of Americans said it was “generally unsafe” to eat genetically modified foods, while 37 percent said it was safe. A parallel survey of scientists showed this was the single largest disagreement between scientists and the general American population; 88 percent of scientists said it was safe to eat GMO foods. Just 28 percent of the public perceived scientists had a clear understanding of the health effects of GMOs. (Hat tip to The Washington Post poll analyst Scott Clement for combing through the data.)

Labeling advocates say Lesser’s study makes unrealistic assumptions.

There are many factors other than ingredient costs that affect retail price, according to a study commissioned by Just Label It! A food processor’s costs fluctuate, but several factors deter companies from raising or lowering their retail or wholesale prices because of “price stickiness,” the study says. That means prices tend to remain constant despite changes in supply and demand, in part because companies are not willing to risk losing long-term customers by raising prices. Plus, setting and advertising new prices is costly on its own.

Consumers Union, which supports mandatory labeling, estimates the median cost of designing and labeling a product as containing GMOs would be just $2.30 per person per year. But these costs may not necessarily be passed on to consumers, they say.

A 2011 study by the USDA looked at the impact of labeling on consumer behavior and market prices in countries that mandated GMO labels. Even large warning labels on the front of packages are not guaranteed to attract consumer attention, the study says.

Evidence suggests that consumers are just as likely to overlook GMO labels as other labels, according to USDA researchers. This is in part because food labels contain a lot of information, and consumers tend to look for labels that matter to them. Even if they do look at every single piece of information on a label, they have a hard time prioritizing what matters the most.

Researchers did not find significant retail price increases resulted from labeling requirements in other countries. Advocates on both sides point to Ben & Jerry’s, which switched to non-GMO products. The premium for non-GMO ingredients ranged from 5 to 20 percent, the Wall Street Journal reported. But Ben & Jerry’s planned to absorb the costs rather than pass them on to customers.

Yet it is impossible to know how many companies will act as Ben & Jerry’s did, said Claire Parker, spokeswoman for the Coalition for Safe Affordable Food, which opposes mandatory labeling. Smaller companies, in particular, would not be able to do so, she said.

It is important to consider how consumer behavior would change, and supporters of mandatory labeling are downplaying the costs, according to Parker: “The validity of the (Consumers Union) study is also brought into doubt by Consumers Union’s admission that they dismissed potential changes in consumer behavior. When the leaders of the movement are admitting the aim of labeling is to change consumer behavior and remove GMOs from the marketplace, I think that tells you how central consumer behavior is to the debate.”

The Pinocchio Test

The $500 figure assumes that companies will switch to more expensive, non-genetically modified ingredients, and then pass all the incurred costs to consumers. It also assumes that all extra costs to stock, warehouse and produce new, non-genetically modified products will translate to higher prices at the cash register. It is difficult to imagine all of these assumptions will materialize for every company.

However, it also is difficult to imagine that consumers or companies will not be affected at all. Not every company may be in the position to absorb all extra costs, if they decide to switch ingredients. Given that consumers overwhelmingly want GMO labeling — even though they largely don’t understand GMOs — consumers could decide not to buy products labeled as such. If the demand for such products decreases significantly, companies will have to act accordingly. Ultimately, that could result in costs trickling down to consumers — even if it’s not as high as $500 per year.

It is an exaggeration to use the $500-per-family figure from the New York labeling bill in the national GMO debate. Those who oppose mandatory labeling are making the assumption that companies will switch out all GMO ingredients, produce completely new products, and then pass on all the costs of stocking, warehousing and producing those products to consumers. There may, indeed, be increased competition for companies to switch to non-GMO ingredients. But there are many other factors that affect wholesale or retail prices than just the cost of ingredients.

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Update: William Lesser, who conducted the Cornell study, provided the following response to this fact check.

April as we know brings showers, leading to May flowers. As of late though April is also bringing a host of state-based bills to require labeling of many foods containing GMO ingredients. There are many issues involved in such discussions, but those receiving special attention are ‘the right to know’ v. labeling costs. The polar points of the cost debate are the $ 2.30 annual per capita from Consumers Union and my estimate for N.Y. of $125 [Note: Lesser said he reduced his $500 estimate for a family of four to $125 per capital to compare to the Consumers Union estimate.], which estimate received a triple ding from The Fact Checker (Would GMO labeling requirement cost $500 more in groceries per family a year?, April 6).

The huge distinction is not over the cost of placing a “May contain GMO ingredients” on a package, but rather what the associated costs are.  Those proposing low costs, according to The Fact Checker, assume few consumers will switch to products with the more costly non-GMO ingredients and/or manufacturers will absorb the higher costs.  The example given is for Ben & Jerry’s which did not raise prices when it switched to non-GMO flavoring ingredients like brownies.  But flavorings are only a small part of ice cream ingredient costs so, that example is not very illustrative.

For my part, I assume based on survey data that, post-labeling, products will realign to 50% labeled GMO-containing, 40% unlabeled non-GMO containing and 10% organic.  Unfortunately The Fact Checker got that fact incorrect, stating my work “assumes that companies will switch out of all GMO ingredients…”  I did not assume that, and the difference is enormous:  about 10,000 – 12,000 individual food items.  It is true that no one really knows how consumers will respond to labeling.  The Fact Checker references a USDA study which notes that consumers may ignore GMO labels as they seem to ignore many other labels.  But then other food products are not stigmatized by being called “Frankenfoods,” certain to cause concern among a population admittedly uninformed about GMOs.

The Fact Checker serves a highly valuable function when checking the accuracy of politicians’ quotes and identifying references to data sources.  Critiquing an individual study on an unfamiliar industry is though a different task which should perhaps be approached with more care.

W. Lesser

Dyson School of Applied Economics and Management

Cornell University